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Election Results

Failed

6,254,342 votes yes (46.8%)

7,109,642 votes no (53.2%)

100% of precincts reporting (24,847/24,847).

Prohibits state from buying any prescription drug from a drug manufacturer at price over lowest price paid for the drug by United States Department of Veterans Affairs. Exempts managed care programs funded through Medi-Cal.

What is this proposal?

Easy Voter Guide — Summary for new and busy voters

Information provided by The League of Women Voters of California Education Fund

The way it is now

The state of California spends approximately $3.8 billion on prescription drugs each year. These drugs are purchased for Medi-Cal patients, state employees and prisoners. Medi-Cal is the program that provides health benefits to low income Californians. Medi-Cal and other state agencies negotiate with drug companies to try and make sure the state is getting a good deal. The United States Department of Veterans Affairs (the VA) buys prescription drugs for military veterans. The national VA often gets a better deal on drugs than the state of California.

What if it passes?

Limit the amount the state could pay for prescription drugs. State agencies would not be allowed to pay more than the Department of Veterans Affairs pays for a particular medication. Prop 61 would apply to most state agencies, except the state’s “managed care system,” which covers 75 percent of people on Medi-Cal. The state would also regularly check to make sure drug costs weren’t higher than those paid by the VA.

Budget effect

How much the state could save depends on many factors. It is not always clear exactly how much the VA pays for medication. Sometimes the VA works out special pricing with drug companies that is not made public. The state may not be able to find some of this information. Drug companies also might raise prices on the VA in response to Prop 61, or refuse to offer the state the lowest price.

People FOR say

Prop 61 would make sure California is not paying too much for prescription drugs.

Prop 61 could save the state millions or billions of dollars in healthcare costs.

People AGAINST say

Prop 61 would not apply to 88 percent of state residents, including most people on Medi-Cal.

Prop. 61 would remove discounts the state currently receives and would increase healthcare costs, not reduce them.

Pros & Cons — Unbiased explanation with arguments for and against

Information provided by The League of Women Voters of California Education Fund

The Question

Should state agencies generally be prohibited from paying more for any prescription drug than the U.S. Department of Veteran Affairs (VA) pays for the same drug?

The Situation

The state purchases prescription drugs under various programs covering current and retired state employees, prison inmates and Medi-Cal enrollees. The state (1) purchases some drugs directly from manufacturers, or (2) reimburses entities implementing state programs. Significant drug purchasers typically negotiate and receive price discounts.

The VA provides health care to approximately nine million veterans nationwide, including prescription drugs. It is subject to federal upper limits on the prices it pays for drugs, and often negotiates additional discounts, generally achieving lower prices.

The VA maintains a public database that lists the prices it pays for most drugs. However, the database may not display the lowest prices paid for some of the drugs because of confidentiality clauses in some purchase agreements.

The Proposal

Prop. 61 would generally prohibit state agencies from paying more for a prescription drug than the lowest price paid by the VA for the same drug after all discounts are factored in. This would apply whether the state purchases directly, or indirectly through reimbursements.

The state’s Medi-Cal program offers comprehensive health coverage to the state’s low-income residents. Prop. 61 would apply to its fee-for-service program, which serves approximately 25 percent of Medi-Cal enrollees, but not to its managed care system, which serves the remaining 75 percent.

Prop. 61 would require the Department of Health Care Services (DHCS) to verify that state agencies are paying the same or less than the lowest price paid by the VA on a drug-by-drug basis.

Fiscal effect

There is the potential for the state to realize drug cost reductions, but there are major uncertainties about the amount of savings.

The VA’s database does not always identify the lowest prices it pays, and it may not be possible to obtain this information. Then DHCS would be unable to assess the lowest price paid by the VA for one or more drugs.

Courts sometimes allow state agencies to implement laws to the degree that is practicable, such as by allowing the state to pay for drugs at a price not exceeding the lowest known VA price, but that is not certain.

There are at least two possible manufacturer responses to Prop. 61:

Drug manufacturers might try to raise the VA’s drug prices.

Drug manufacturers could decline to offer California some drugs purchased by the VA.

Therefore, the amount of any savings under Prop. 61 could range from relatively little effect to significant annual savings.

Supporters say

Skyrocketing prescription prices are a matter of life and death. Prop. 61 will end the price gouging.

Prop. 61 empowers the state to negotiate the same or better deals for taxpayers as are paid by the VA.

Opponents say

Prop. 61 only covers an arbitrary group of patients in certain government programs; more than 88 percent of Californians are excluded.

Prop. 61 would result in the elimination of drug discounts the state currently receives, increasing state prescription costs instead of reducing them.

Measure Details — Official information about this measure

YES vote means

State agencies would generally be prohibited from paying more for any prescription drug than the lowest price paid by the U.S. Department of Veterans Affairs for the same drug.

NO vote means

State agencies would continue to be able to negotiate the prices of, and pay for, prescription drugs without reference to the prices paid by the U.S. Department of Veterans Affairs.

Summary

Attorney General of California

Prohibits state agencies from buying any prescription drug from a drug manufacturer at any price over the lowest price paid for the same drug by the United States Department of Veterans Affairs, except as may be required by federal law.

Applies to any program where the state agency is the ultimate payer for a prescription drug, even if the state agency does not itself buy the drug.

SUMMARY OF LEGISLATIVE ANALYST’S ESTIMATE OF NET STATE AND LOCAL GOVERNMENT FISCAL IMPACT:

Potential for state savings of an unknown amount depending on (1) how the measure’s implementation challenges are addressed and (2) the responses of drug manufacturers regarding the provision and pricing of their drugs.

Background

Legislative Analyst's Office

The State Payments for Prescription Drugs

State Pays for Prescription Drugs Under Many Different State Programs.Typically, the state pays for prescription drugs under programs that provide health care or health insurance to certain state populations. For example, the state pays for prescription drugs through the health care coverage it provides to the state’s low-income residents through the Medi-Cal program and to current and retired state employees. The state also provides and pays for the health care of prison inmates, including their prescription drug costs.

State Pays for Prescription Drugs in a Variety of Ways.In some cases, the state purchases prescription drugs directly from drug manufacturers. In other cases, the state pays for prescription drugs even though it is not the direct purchaser of them. For example, the state reimburses retail pharmacies for the cost of prescription drugs purchased by the pharmacies and dispensed to individuals enrolled in certain state programs.

Annual State Drug Expenditures Totaled Almost $3.8 Billion in 2014-15. As shown in Figure 1, the state spent almost $3.8 billion on prescription drugs in 2014-15 under a variety of state programs. State funds pay for roughly half of overall state prescription drug spending, and the remainder is paid with federal and other nonstate revenues.

Prescription Drug Pricing in General

Prices Actually Paid Often Differ From the Drugs’ “List Prices.”

Prescription drugs sold in the United States have list prices that are similar to the manufacturer’s suggested retail price (MSRP) for automobiles. Purchasers of the drugs typically negotiate the prices and often receive discounts. As a result, the final price paid for a prescription drug is typically lower than its list price.

Different Payers Often Pay Different Prices for the Same Prescription Drug. Often there is no single price paid by all payers for a particular prescription drug. Instead, different payers may regularly pay different prices for the same drug, which reflect the results of negotiations between the drugs’ buyers and sellers. For example, two different insurance companies may pay different prices for the same drug, as may two separate state agencies such as the California Department of Health Care Services (DHCS) and the California Department of Public Health.

Prices Paid for Prescription Drugs Are Often Subject to Confidentiality Agreements.Prescription drug purchase agreements often contain confidentiality clauses that are intended to prohibit public disclosure of the agreed prices. As a result, the prescription drug prices paid by a particular entity, including a government agency, may be unavailable to the public.

State Prescription Drug Pricing

State Strategies to Reduce Prescription Drug Prices. California state agencies pursue a variety of strategies to reduce the prices they pay for prescription drugs, which typically involve negotiating with drug manufacturers and wholesalers. The particular strategies vary depending on program structure and the manner in which the state programs pay for drugs. For example, multiple California state departments jointly negotiate drug prices with manufacturers. By negotiating as a single, larger entity, the participating state departments are able to obtain lower drug prices. Another state strategy is to negotiate discounts from drug manufacturers in exchange for reducing the overall administrative burden on doctors prescribing these manufacturers’ drugs.

United States Department of Veteran Affairs (VA) Prescription Drug Pricing

VA Provides Health Care to Veterans. The VA provides comprehensive health care to approximately nine million veterans nationwide. In doing so, the VA generally purchases the prescription drugs that it makes available to VA health care beneficiaries.

Programs to Reduce Federal Prescription Drug Expenditures. The federal government has established discount programs that place upper limits on the prices paid for prescription drugs by selected federal payers, including the VA. These programs generally result in lower prices than those available to private payers.

VA Obtains Additional Discounts From Drug Manufacturers or Sellers.On top of the federal discount programs described above, the VA often negotiates additional discounts from drug manufacturers or sellers that lower its prices below what other federal departments pay. Manufacturers or sellers provide these discounts in return for their drugs being made readily available to VA patients.

VA Publishes Some of Its Prescription Drug Pricing Information.The VA maintains a public database that lists the prices paid by the VA for most of the prescription drugs it purchases. According to the VA, however, the database may not display the lowest prices paid for some of the drugs for which the VA obtains additional negotiated discounts. The VA may not publish this pricing information in the database due to confidentiality clauses that are included in certain drugs’ purchase agreements and are intended to prohibit public disclosure of the negotiated prices.

Impartial analysis / Proposal

Legislative Analyst's Office

Measure Sets an Upper Limit on Amount State Can Pay for Prescription Drugs. This measure generally prohibits state agencies from paying more for a prescription drug than the lowest price paid by the VA for the same drug after all discounts are factored in for both California state agencies and the VA.

Measure Applies Whenever the State Is the Payer of Prescription Drugs.The measure’s upper limit on state prescription drug prices applies regardless of how the state pays for the prescription drugs. It applies, for example, whether the state purchases prescription drugs directly from a manufacturer or instead reimburses pharmacies for the drugs they provide to enrollees of state programs.

Measure Exempts a Portion of the State’s Largest Health Care Program From Its Drug Pricing Requirements. The state’s Medi-Cal program offers comprehensive health coverage to the state’s low-income residents. The state operates Medi-Cal under two distinct service delivery systems: the fee-for-service system (which serves approximately 25 percent of Medi-Cal enrollees) and the managed care system (which serves approximately 75 percent of enrollees). While the measure applies to the fee-for-service system, it exempts the managed care system from its drug pricing requirements described above.

DHCS Required to Verify That State Agencies Are Complying With Measure’s Drug Pricing Requirements.

The measure requires DHCS to verify that state agencies are paying the same or less than the lowest price paid by the VA on a drug-by-drug basis.

Financial effect

Legislative Analyst's Office

By prohibiting the state from paying more for a prescription drug than the lowest price paid by the VA, there is the potential for the state to realize reductions in its drug costs. There are, however, major uncertainties concerning

the implementation of the measure’s lowest-cost requirement and

how drug manufacturers would respond in the market. We discuss these concerns below.

Potential Implementation Challenges Create Fiscal Uncertainty

Some VA Drug Pricing Information May Not Be Publicly Accessible.The measure generally requires that the prescription drug prices paid by the state not exceed the lowest prices paid by the VA on a drug-by-drug basis. As mentioned above, the VA’s public database information on the prices of the prescription drugs it purchases does not always identify the lowest prices the VA pays. This is because, at least for some drugs, the VA has negotiated a lower price than that shown in the public database and is keeping that pricing information confidential. It is uncertain whether the VA could be nonetheless required to disclose these lower prices to an entity—such as DHCS—requesting such information under a federal Freedom of Information Act (FOIA) request. A FOIA exemption covering trade secrets and financial information may apply to prevent the VA from having to disclose these currently confidential prices to the state.

Confidentiality of VA Drug Prices Could Compromise the State’s Ability to Implement the Measure.If the VA is legally allowed to keep some of its prescription drug pricing information confidential, DHCS would be unable to assess in all cases whether state agencies are paying less than or equal to the lowest price paid by the VA for the same drug. This would limit the state’s ability to implement the measure as it is written. However, to address challenges in implementing laws, courts sometimes grant state agencies latitude to implement laws to the degree that is practicable as long as implementation is consistent with the laws’ intent. For example, courts might allow the state to pay for drugs at a price not exceeding the lowest known price paid by the VA, rather than the actual lowest price, to allow the measure to be implemented.

Potential Confidentiality of Lowest VA Drug Prices Reduces but Does Not Eliminate Potential State Savings. The potential confidentiality of at least some of the lowest VA prices reduces but does not eliminate the measure’s potential to generate savings related to state prescription drug spending. Though pricing information may be unavailable for some of the VA’s lowest-priced prescription drugs, publicly available VA drug prices have historically been lower than the prices paid by some California state agencies for some drugs. To the extent that the VA’s publicly available drug prices for particular drugs are lower than those paid by California state agencies and manufacturers choose to offer these prices to the state, the measure would help the state achieve prescription drug-related savings.

Potential Drug Manufacturer Responses Limit Potential Savings

Drug Manufacturer Responses Under Measure Could Significantly Affect Fiscal Impact.In order to maintain similar levels of profits on their products, drug manufacturers would likely take actions that mitigate the impact of the measure. A key reason why drug manufacturers might take actions in response to the measure relates to how federal law regulates state Medicaid programs’ prescription drug prices. (Medi-Cal is California’s Medicaid program.) Federal law entitles all state Medicaid programs to the lowest prescription drug prices available to most public and private payers in the United States (excluding certain payers, such as the VA). If certain California state agencies receive VA prices, as the measure intends, this would set new prescription drug price limits at VA prices for all state Medicaid programs. As a result, the measure could extend the VA’s favorable drug prices to health programs serving tens of millions of additional people nationwide, placing added pressure on drug manufacturers to take actions to protect their profits under the measure.

Below are two possible manufacturer responses. (We note that manufacturers might ultimately pursue both strategies, while at the same time offering some drugs at favorable VA prices.)

Drug Manufacturers Might Raise VA Drug Prices. Knowing that the measure makes VA prices the upper limit for what the state can pay, drug manufacturers might choose to raise VA drug prices. This would allow drug manufacturers to continue to offer prescription drugs to state agencies while minimizing any reductions to their profits. Should manufacturers respond in this manner, potential savings related to state prescription drug spending would be reduced.

Drug Manufacturers Might Decline to Offer Lowest VA Prices to the State for Some Drugs. The measure places no requirement on drug manufacturers to offer prescription drugs to the state at the lowest VA prices. Rather, the measure restricts actions that the state can take (namely, prohibiting the state from paying more than the lowest VA prices for prescription drugs). Therefore, if manufacturers decide it is in their interest not to extend the VA’s favorable pricing to California state agencies (for example, to avoid consequences such as those described above), drug manufacturers could decline to offer the state some drugs purchased by the VA. In such cases, these drugs would be unavailable to most state payers. Instead, the state would be limited to paying for drugs that either the VA does not purchase or drugs that manufacturers will offer at the lowest VA prices. (However, to comply with federal law, Medi-Cal might have to disregard the measure’s price limits and pay for prescription drugs regardless of whether manufacturers offer their drugs at or below VA prices.) This manufacturer response could reduce potential state savings under the measure since it might limit the drugs the state can pay for to those that, while meeting the measure’s price requirements, are actually more expensive than those currently paid for by the state.

Summary of Overall Fiscal Effect

As discussed above, if adopted, the measure could generate annual state savings. However, the amount of any savings is highly uncertain as it would depend on (1) how the measure’s implementation challenges are addressed and (2) the uncertain market responses of drug manufacturers to the measure. As a result, the fiscal impact of this measure on the state is unknown. It could range from relatively little effect to significant annual savings. For example, if the measure lowered total state prescription drug spending by even a few percent, it would result in state savings in the high tens of millions of dollars annually.

Published Arguments — Arguments for and against the ballot measure

Arguments FOR

Drug companies making enormous profits from people’s illnesses and misery isn’t just a moral issue. Skyrocketing prescription drug prices are a matter of life and death.

More Americans die of hepatitis C than from all other infectious diseases—EVEN THOUGH THERE’S A CURE. One reason? The drug company that controls it charges more than $1,000 per pill, out of most patients’ reach.

That’s not the only outrageous example of drug-company price-gouging:

The price of a common infection-fighting pill was raised overnight from $13.50 to $750—nearly a 5000% increase.

The average annual cost of widely-used specialty drugs is estimated at $53,000—greater than the nation’s median household income ($52,000) and almost 3 1/2 times larger than average annual Social Security benefits of $15,000.

One cancer drug costs $300,000 a year.

The drug companies put profits over people, returns for stockholders over cures for patients. What good are miraculous, life-saving medications, if they’re priced so high patients can’t afford them—and thousands are dying as a result?

Proposition 61, The California Drug Price Relief Act, fights back against the drug companies’ price-gouging. And it is expected to save lives. Here’s how it would work: The Act would require the State of California to negotiate with drug companies for prices that are no more than the amounts paid for the same drugs by the U.S. Dept. of Veterans Affairs (DVA).

Why the Dept. of Veterans Affairs? Because unlike Medicare, the DVA negotiates for drug prices, and pays on average 20–24% less for medications than other government agencies, up to 40% less than Medicare Part D. The Drug Price Relief Act empowers the State of California, as the healthcare buyer for millions of Californians, to negotiate the same or even better deals for taxpayers, which could save billions in healthcare costs.

Drug companies are planning to spend $100 million to fight this measure because they know it would cause downward pressure on ALL drug prices—and cut into their excessive profits.

Don’t just take our word for it, a publication for drug executives called Prop. 61 “GROUND ZERO” in the national fight for lower drug prices, warning:

“If the voters of California approve this proposition . . . [it] would no doubt cause an immediate demand for the same VA discount rate to be made available to other states, the federal government, and likely private [health plan] entities, as well. IN SHORT [IT] WOULD BE A PRICING DISASTER FOR THE ENTIRE U.S. DRUG INDUSTRY.

But a “pricing disaster” for drug companies would equal price relief for hard-pressed consumers.

Prop. 61 is strongly supported by the 86,000-member California Nurses Association—the largest healthcareprovider organization in the state; AARP, the largest retirees’ group in California, with 3.3 million members; the Urban League; the Campaign for a Healthy California, including many labor unions; Progressive Democrats of America; Sen. Bernie Sanders; former U.S. Labor Secretary Robert Reich; and many others.

JOIN US IN FIGHTING AGAINST HIGH DRUG PRICES AND DRUG COMPANY GREED. VOTE YES ON PROPOSITION 61. For more information, go to www.StopPharmaGreed.com.

Arguments AGAINST

Proposition 61 is a deeply flawed and costly scheme that is not what it seems.

Prop. 61 was written and is being promoted by Michael Weinstein, the controversial president of an organization that brought in more than $1 billion selling prescription drugs and HMO policies. Suspiciously, he exempted his own HMO from having to comply with the measure he wrote and is promoting.

PROP. 61 DOES NOT APPLY TO 88% OF CALIFORNIANS. BUT IT NEGATIVELY IMPACTS ALL CALIFORNIANS

The proposition only covers an arbitrary group of patients in certain state government programs, including some government employees and state prisoners. More than 88% of Californians are excluded. More than 10 million Medi-Cal low-income patients, 20 million Californians with private health insurance and Medicare, and millions of others—ALL EXCLUDED.

PROP. 61 COULD INCREASE PRESCRIPTION DRUG COSTS FOR VETERANS The US Department of Veterans Affairs receives special discounts on prescription drugs for veterans. This measure could result in eliminating these discounts and increasing prescription drug prices for veterans. That’s why the measure is opposed by more than a dozen veteran groups, including:

Veterans of Foreign Wars, Department of California

Vietnam Veterans of America, California State Council

American Legion, Department of California

AMVETS, Department of California

DOCTORS AND PATIENT ADVOCATES SAY PROP. 61 WOULD DISRUPT ACCESS TO NEEDED MEDICINES Prop. 61 would result in a new bureaucratic prior approval process that would interfere with patient access to needed medicines. Leading health groups oppose Prop. 61, including:

California Medical Association

American Congress of Obstetricians and Gynecologists (ACOG)—District IX/CA

Ovarian Cancer Coalition of Greater California

PROP. 61 WOULD LIKELY INCREASE STATE PRESCRIPTION DRUG COSTS

Prop. 61 would result in the elimination of drug discounts the state currently receives—increasing state prescription costs by tens of millions annually. The state’s nonpartisan Legislative Analyst says the measure could raise state spending on many prescription drugs.

INCREASED BUREAUCRACY, RED TAPE AND HIGHER TAXPAYER COSTS

The California Taxpayers Association opposes Prop. 61. The measure is completely vague on how it would be implemented. Passage of this measure would result in more government bureaucracy, red tape and lawsuits as state agencies struggle to implement it—costing taxpayers millions.

PROMOTER WROTE IN SPECIAL PROVISIONS FOR HIS OWN ORGANIZATION The proponent exempted his billion dollar operation and wrote in provisions giving him a special right to engage in lawsuits regarding this measure. This provision requires California taxpayers to pay his lawyers—a virtual blank check.

Proposition 61 is yet another example of a misleading and costly ballot measure. It would hurt veterans; jeopardize patient access to needed medicines; increase state prescription costs; and add more bureaucracy, red tape and lawsuits—costing taxpayers millions.

“While California’s physicians are profoundly concerned about the affordability of prescription drugs, we evaluated this measure and have concluded it is deeply flawed and unworkable. We believe the measure would likely increase—not lower—state prescription drug costs.”

The California Taxpayers Association opposes Prop. 61 because it would impose new bureaucracy and red tape, and cause countless lawsuits—COSTING TAXPAYERS MILLIONS.

The Veterans of Foreign Wars (VFW), Department of California urges NO on 61 because it could jeopardize special discounts given to the U.S. Department of Veterans Affairs and INCREASE DRUG PRICES FOR VETERANS.

Who’s behind this measure?

Prop. 61 was written by Michael Weinstein, president of an organization that brings in $1 billion annually selling prescription drugs and operating HMOs. His group is spending millions to fund the campaign. But he exempted his own organization from its drug pricing provisions. He shouldn’t ask Californians to approve a flawed initiative he isn’t willing to comply with himself.

Prop. 61 is OPPOSED BY MORE THAN 100 CALIFORNIA ORGANIZATIONS, including:

Vietnam Veterans of America, California State Council

California Taxpayers Association

Veterans of Foreign Wars (VFW), Dept. of California

California NAACP

American Congress of Obstetricians and Gynecologists (ACOG)—District IX/CA

California Medical Association

Prop. 61 is deeply flawed and costly. Vote NO. www.NoProp61.com

STEVE MACKEY, President Vietnam Veterans of America, California State Council

WILLIAM M. REMAK, Chairman California Hepatitis C Task Force

ALICE A. HUFFMAN, President California NAACP

— Secretary of State Voter Info Guide

Replies to Arguments AGAINST

The drug companies want you to believe they’re opposing Prop. 61 because it wouldn’t cover every drug purchase in California. That’s as laughable as the NRA saying it opposes an assault-weapons ban because it doesn’t cover enough different kinds of guns.

THE DRUG COMPANIES ARE ONLY CONCERNED ABOUT MAINTAINING THEIR EXORBITANT PRICES AND PROFITS, PURE AND SIMPLE!

Don’t be fooled by their expected $100-million campaign of distortion and mistruths. Voting against 61 only allows the drug companies to continue ripping off you and your family.

Despite what they’re telling voters, there’s a reason the No on Prop. 61 campaign is FUNDED ALMOST ENTIRELY BY OUT-OF-STATE DRUG COMPANIES. Here’s what drugmakers are telling themselves, in publications like Pharmaceutical Executive:

“It’s pretty clear that if this California pricing proposition passes, ALL HELL MAY BREAK LOOSE FOR THE AMERICAN PHARMACEUTICAL INDUSTRY . . . It would shake the rafters of every single public state drug program in the nation, as well as the federal Medicaid and Medicare programs.”

Drug companies are also unpatriotically threatening to raise drug prices for veterans, BUT THAT’S ANOTHER EMPTY THREAT. Federal law REQUIRES discounts for the Dept. of Veterans Affairs, drug companies aren’t selling reducedprice drugs to veterans out of the goodness of their hearts. Support Prop. 61 along with:

California Nurses Association

AARP California

The Urban League

AIDS Healthcare Foundation

VoteVets Action Fund

Association of Asian Pacific Community Health Organizations

Progressive Democrats of America

ONLY PROPOSITION 61 ALLOWS ORDINARY CITIZENS TO FIGHT BACK AGAINST DRUG COMPANY POWER AND GREED. www.StopPharmaGreed.com.

Sacramento State College’s Project for an Informed Electorate provides non-partisan videos on California’s ballot Propositions. Each video includes an appearance by a representative from the California Legislative Analyst’s Office (LAO). The LAO writes the state’s impartial analysis on each Proposition.